Tim Pawlenty on Tax Reform

Republican MN Governor

Health Impact Fee: increased cigarette tax but regretted it

Q: In 2005 you levied a new tax on cigarettes, which you called a health impact fee. You said you had to compromise with a Democratic legislature to end government shutdown. But doesn't that show that when leaders are faced with big deficits, they
sometimes have to raise taxes?

PAWLENTY: No. On financial management, the CATO institute gave only four governors in America their highest grade, an "A" grade. I was one of those governors. As to the circumstance that you mentioned,
I had the first government shutdown in 150 years. We did put together a package, but I balanced the budget every time in Minnesota that I was governor. In fact, my last budget ended June 30 of this year with a surplus. I did agree to the cigarette fee.
I regretted that. As it turns out the courts later held it to be a fee. But nonetheless, it was an increase in revenues. It turns out we had a new budget forecast a few months later. And we didn't even need it.

Just two tax brackets: 10% below $100K; then 25% above that

Pawlenty pledged to drastically reduce tax rates, and eliminate the taxation of savings. Pawlenty said his plan was aimed at producing average annual growth of 5% over 10 years, compared with average growth of 1.7% during the past decade. "Five percent
economic growth over 10 years would generate $3.8 trillion in new tax revenues," said Pawlenty. "With that, we would reduce projected deficits by 40%, all before we made a single cut."

The Pawlenty plan would collapse the current six income-tax rates
into two: a 10% rate on the first $100,000 of income for couples and a 25% rate on all income above that. Under current law, the top bracket is 35%. Pawlenty said he wouldn't propose ending current deductions, such as those for home-mortgage interest.
Taxes would also be eliminated on capital gains, interest, dividends, and inheritance. The corporate income-tax rate would be cut to 15% from 35%, and small businesses would be given the choice to pay that rate or individual income-tax rates.

As House Leader, cut taxes by largest amount in MN history

In 1998, for the first time in a very long time, Republicans won the majority in the Minnesota House. After 6 years on the job, to my delight and honor, my fellow Republicans selected me to be a majority Leader. Over the course of the next for years, our
majority accomplished a lot, but I think the thing I'm most proud of is that we cut taxes by the largest amount in MN history. That was a major accomplishment in Minnesota, which at that point was one of the highest-taxed states in the country.

1992 election based on high taxes & over-spending

The 1990 census resulted in a legally required redistricting process. That yielded an unexpected open seat for the Minnesota House. After much thought, discussion and prayer, I got into the race. It was very clear to me that the best way to win was to
give some shoe leather, pound the pavement, and drum up all the grassroots support I could. I faced a serious Democratic contender, plus a third-party candidate who was center-right. My platform wasn't exactly flashy or spectacular. It was based in commo
sense, conservative values and bread-and-butter issues. I thought taxes in Minnesota was too high, and I wanted to do what I could to see them reduced, and to get serious about holding the line on spending. I thought we needed to improve education in our
state as well. I saw no reason to come up with anything flashy when the basics were what I cared about most. So I didn't. I just spoke from the heart. I think something about my simple, straightforward message paid off--because I won.

Increase taxes only if necessary; & with automatic repeal

In his words [in a 1992 article on Pawlenty], "what we have become is accountants for Democrats. We are the ones saying we can't do this or that because it's too expensive. That's an important function, but that's all we're perceived as saying. Most
people don't want accountants as leaders."

Pawlenty was a strong proponent of limited government and lower taxes. He was asked before the election: "If a tax increase is absolutely necessary to balance the budget, what kind of tax hike would you favor?
His response: "Taxes should be increased only if absolutely necessary. Under such circumstances, any tax increase should be temporary and have an automatic repeal provision.
As to the types of taxes that might be increased in emergency circumstances, very small increases on a variety of taxes should be considered to avoid a disproportionate impact by any one tax-paying sector of the state's economy."

Tax cuts stimulate economy; create jobs; & raise revenue

In 1999, Pawlenty wrote: "Pres. Clinton should sign the Republican tax plan. Presidents Kennedy & Reagan were both tax cutters and knew that tax cuts stimulate the economy, produce more private investment, start more businesses, create more jobs--and
create more tax revenues! That's right, serious students of the Reagan & Kennedy tax cuts know that tax revenues increased after the tax cuts were enacted. The same will be true in MN. Even after huge tax cuts, tax revenues in MN will increase."

Source: Sam's Club Republican, by J.A. McClure, p. 17
, May 10, 2010

No-new-tax pledge, but increased 60 fees

The critical test of Pawlenty's first term was whether he would honor his no-new-taxes pledge. Democrats, the media, and special interest groups applied constant pressure on Pawlenty to raise taxes.
Pawlenty was resolute in his no-new-taxes pledge. Democrats and Republicans alike doubted he could make it through his first legislative session without agreeing to the endless demands for tax increases. He did.
No tax hike was signed into law.

The only catch was that his pledge didn't apply to state fees, tuition, or local property taxes, all of which rose.
Pawlenty's 60 fee increases in the first year were especially irksome, labeled by some as "stealth taxes." Pawlenty said there was nothing stealthy about them: "People will know exactly what they are paying for the services they get."

Get Minnesota out of the top ten states in taxes

It's plainly obvious that Minnesota's tax system is not even close to competitive. We've made some progress by achieving a decades-long goal of getting Minnesota out of the top ten states in taxes. We've dramatically slowed down state government spending
And even in this economy, we've seen Minnesota's GDP grow more than 25% during my time in office. While our unemployment rate is too high, it's significantly below the national average.

Source: Minnesota 2010 State of the State Address
, Feb 11, 2010

Bush tax cuts should have been permanent in the first place

A: Senator Obama is for dramatically increasing taxes. And Senator
McCain doesn’t believe that’s the way to grow the economy. Obama’s proposals include lifting the cap on Social Security taxes, in terms of income levels; not addressing the AMT very fully. He wants to boost capital gains taxes from
15% to almost double that.

Q: You don’t have a problem with allowing the Bush tax cuts that were implemented in 2001 and 2003 being made permanent, all of the Bush tax cuts, the estate tax plus the tax cuts for the wealthiest
Americans, including billionaires?

A: They should have been permanent in the first place. The fact that we’re even having the debate, I think, is silly. But now that they’re going to expire, I think they should continue.

Bush tax cuts should have permanent in the first place

Q: You don’t have a problem with allowing the Bush tax cuts that were implemented in 2001 and 2003 being made permanent, all of the Bush tax cuts, the estate tax plus the tax cuts for the wealthiest Americans, including billionaires?

A: They should have been permanent in the first place. The fact that we’re even having the debate, I think, is silly. But now that they’re going to expire, I think they should continue.
And keep in mind, when you talk about tax cuts for the wealthy, that involves these reductions in corporate taxes, or increasing the AMT, or the exemptions I had talked about.
And when you look at as a basket, it’s the kind of thing we need to do to grow jobs, expand the economy. We can’t tax our way out of this. We’re going to have to grow our way, in part, out of it.

$12B in federal economic stimulus as state block grants.

Pawlenty signed $12B in federal economic stimulus as state block grants

The nation's governors urge you to include state countercyclical funding as part of your legislation to stimulate the economy. This would include $6 billion in Medicaid assistance by freezing scheduled federal FMAP reductions and increasing all states' F
Congress approved $20 billion in assistance to states, including $10 billion in Medicaid and $10 billion in block grants. The governors' current stimulus proposal is essentially the same, with the exception that it is a total of $12 billion as opposed to $20 billion. This proposal can be enacted quickly, as there is precedent and it is timely, temporary and targeted.

Additionally, governors appreciate federal efforts to use tax policy to get additional money into the hands of consumers and businesses to stimulate the economy. When considering tax changes to spur economic growth, governors urge Congress and the Administration to follow the maxim of "Do no harm" by avoiding changes at the federal level that would diminish state tax revenues or force state actions that would undermine the effectiveness of federal efforts.

We look forward to working with you to enact the appropriate stimulus program.